Mortgage Guarantee Company

Understanding Mortgage Guarantee Company

Mortgage Guarantee Company are incorporated under the Companies Act of 2013, which requires necessary business to be licensed by the Reserve Bank of India to transact mortgage guarantee business. They are specialized financial firms engaged in originating or funding mortgages for residential or commercial property.

The prime focus of the mortgage guarantee company is to provide mortgage guarantees offered for repayment of an outstanding housing loan and incurred interest upon it to the guaranteed amount to a creditor for any occurrence of default from the end of the borrower. A Mortgage guarantee company is restricted from being a subsidiary of any company registered outside India.

Start your Mortgage Guarantee Company incorporation with our expert consulting services defining successful company registration in the form of a non-banking finance company designed as a fiscal relief weapon for the government, which mainly focuses on financial industry excellence.

Challenges in Mortgage Guarantee Company Incorporation

Registering a mortgage guarantee company is a herculean task that involves multiple challenges that need to be mastered under the directions laid out by the Reserve Bank of India. The RBI directions incorporate a proper framework for eliminating any issues while incorporating or carrying out the business operations of the mortgage guarantee company in India.

Our expertise with mortgage guarantee company registration critically warns you of the complexities you might face.

• Difficulty in ensuring compliance with evolving regulatory framework;
• Issue while incorporating a mortgage guarantee company in consonance with the regulations framed by the Reserve Bank of India and the Securities and Exchange Board of India;
• Difficulty in comforting the capital adequacy of minimum net owned fund balance of INR 100 crores as prescribed by RBI;
• Challenging landscape in maintaining a diversified investment pool;
• Challenges while setting up the operational system and developing solid relationships with lenders;
• Challenges faced in accessing the borrower's creditworthiness (non-performing assets) in the COVID-19 mortgage guarantee market;

Choose our expertise to help you plan your financial budget forecast and offer valuable business insights to boost your growth in the ever-evolving landscape.

Why Incorporate a Mortgage Guarantee Company?

The Finance Minister of India interpreted many challenges through his proposal in the Union Budget of 2007-08, like the rise in default and non-performance of assets in financial institutions and housing finance, which resulted in the introduction of the idea of incorporating a mortgage guarantee company, which will ultimately relieve the bad assets in banking and other financial institutions.

Consider the following reasons that might benefit your business entity from incorporating a mortgage guarantee company in India:

• It is designed to save banks and other financial institutions from any damage or suffering to credit, especially from the borrower's end;
• It is a kind of tool that covers home loan defaults similar to home insurance projects, which allows banks, housing finance companies, and non-banking financial institutions to lower risks and enhance their business portfolios;
• It mainly contributes towards maintaining the overall growth and stability in the housing finance sector;
• It ensures the maintenance of equilibrium by balancing the higher and lower loan terms and by offering longer repayment periods;
• It ensures the enhancement of credit availability in the finance market.

However, a mortgage guarantee company is more likely to grow rapidly in an ever-evolving landscape. Whether you are starting or expanding your business, we will provide customized solutions to expand your business, fuel your company's growth, and seize extreme business opportunities in the market.

Consider Key Factors Shaping Mortgage Guarantee Company

Shaping the mortgage guarantee company requires you to consider the mortgage market, which has been growing steadily, driven by urbanization, increasing disposable incomes, and government programs to encourage the development of the housing and real estate sector.

Housing finance companies, NBFCs, and banks are more likely to represent the mortgage guarantee market, which exhibits significant growth potential due to the country's large population and increased demand for housing.

The mortgage guarantee market has been underdone with structural transformation, offering a safe and attractive environment for buyers to purchase a home, securing both the demand and supply over the last few years. Some of the significant factors that need to be considered in an Indian mortgage guarantee market are:

• The attractive factor leading to a rise in affordability for housing has also enhanced within the last 5-6 years and reached beyond its best level in the previous fiscal years;
• The government launched different schemes to promote the affordable housing segment, including the Pradhan Mantri Awas Yojna (PMAY), with the intent to offer housing for all (which encourages individuals to purchase homes);
• The competitive mortgage guarantee market establishes new players competing within the market for shares; traditional players, including banks, HFCs, and NBFCs, are prominent among competitors;
• Market regulators like the Reserve Bank of India and the National Housing Bank are formulating regulatory changes to enhance the mortgage market stability and save the borrower and lender by promoting responsible lending practices;
• The interest rate in the mortgage guarantee landscape comes under the influence of factors like RBI policy rates and market forces. Borrowers should concentrate on these rates, which can easily impact their affordability level and the decision to have a loan;
• This trend serves mortgage companies within India to adopt digital technologies into business operations, such as digital paperwork, the online application process, and the use of data analytics to assess business risks and enhance customer profiles. Further, the pandemic has boosted the growth of this trend as remote-less and contactless financial services were prominently important.

RBI Guidelines for Mortgage Guarantee Company

The RBI has formulated a draft scheme that grants the certificate of registration for the mortgage Guarantee Company which discussed and received recommendations and approval from the central government to specify the mortgage guarantee company, and the notification in this regard dated 15th January 2008.

The RBI guidelines on the registration and operations of Mortgage Guarantee Company under section 45L(1)(b) of the RBI Act of1934 authorizes to get prepared with the following mandatory legal requirements as specified below:

1. Mortgage Guarantee Contract

A mortgage Guarantee Contract refers to a tri-parties contract held between the borrower, creditor institution, and mortgage guarantee company that offers the mortgage guarantee. The agreement must comply with section 126 of the Indian Contract Act 1872. It must be unconditional and irrevocable, and the guarantee that arises within the contract must be free from coercion, undue influence, fraud, misrepresentation, and mistake under the Indian Contract Act of 1872.

The contract must not contain provisions for repaying principal and interest outstanding in the borrower's housing loan account up to the guarantee amount. The guarantor shall pay the guaranteed amount on invocation without any adjustment against the realizable value of the mortgaged property. The company is debarred from operating as an insurance business.

2. Capital Requirement

The Mortgage guarantee company must hold a minimum net worth of INR 100 crores during its business operations, which shall be reviewed for enhancement after three years. Mortgage guarantee Company is required to maintain its capital adequacy ratio at all times. A mortgage guarantee company must maintain a capital adequacy ratio of 10% of its aggregate risk.

3. Funding Options for Mortgage Guarantee Company

The mortgage guarantee companies can commence their business operations along with the following funding options, as specified below:

• By acceptance of public deposits;
• By mode of external commercial borrowings;
• By creating and maintaining reserves, etc.

4. Investment Policy for Mortgage Guarantee Company

Any business entity holder intending to register a mortgage guarantee company must comply with the policies allowing investment in only the following instruments:

• Government securities;
• Securities of corporate public sector undertakings;
• Fixes deposits or bonds of scheduled commercial banks;
• Mutual Fund Units (debt-oriented);
• Government securities or guaranteed bonds (unquoted);
• Equity shares of any company (quoted or unquoted), etc.

5. Mandatory Compliance for Mortgage Guarantee Company

The licensed mortgage guarantee company must duly adhere to the following mandatory legal requirements guaranteeing legal compliance laid under the RBI guidelines on the registration and operations of Mortgage Guarantee Company in India:

• The licensed Mortgage Guarantee Companies are required to maintain one or more registers to make an entry of the particular guarantee duly provided by the company, which includes the name and address of both borrower and co-borrower, date, time, and amount of sanctioned loan, the description of the property (like the site, location of such property), nature of security available for loan, tenure of such loan, amount and due date of instalments, name, and address of bank or housing finance company who guarantee offered, the date and amount of guarantee and its duration.
• Before offering a guarantee for the repayment of a housing loan, the mortgage guarantee companies are required to initiate due diligence, which includes that a valid mortgage secures the loans, whether the creditor institution has verified the property title, marketability, and borrower creditworthiness, verified the use of land where a house or residential property is constructed or going to be constructed out from the loan, need to verify the letter of permission duly obtained from the concerned authority for the construction purpose. The loan guaranteed should not be more than 90% of the property value.
• The mortgage guarantee company is bound to communicate with the Reserve Bank of India no more than one month after any change in its director's name, contact details, address, or position.
• Mortgage Guarantee Companies must establish an Audit Committee of not less than three non-executive directors of the company's board, comprising at least one of them, who will be chartered Accountants.
• The mortgage guarantee company policy offers mortgage guarantees to credit institutions that its board must duly approve of directors. The said policy must specify the fee or premium chargeable to provide a mortgage guarantee depending upon specific criteria that include the quantum of loan, LTV ratio, credit quality of borrower, and credit risk managing skills of both banks and housing finance companies. It also included the delegation of power to enter into a guaranteed contract or offer a mortgage guarantee, the delegation of power to make decision-making good claims from banks and housing finance companies, and delegated power to initiate proceedings for recovering due from borrowers.
• The mortgage guarantee company must also be capable of paying its liabilities that arise from entering into a contract of guarantee and hold an adequate capital source with an appropriate earning from the mortgage guarantee business. The general charter of such companies must not be against the public interest.

Mortgage Guarantee Company Registration with RBI Guidelines

As the Reserve Bank of India is satisfied with the following terms and conditions, it grants the mortgage guarantee company a certificate of registration to operate its business within India. All such conditions must be suitable for companies seeking approval as Mortgage Guarantee Companies.

Step 1: Compliance with Public Interest

Mortgage Guarantee Company must stay compliant and comply with the norms for foreign investments. The public interest must be aligned with the grant of registration for the Mortgage Guarantee Company, and its operation within India should not oppose the housing fiancé sector within the country.

In addition, the mortgage guarantee company must, as RBI decides, comply with all the necessary conditions for the time being, and its operation must not be against the public interest and housing finance sector.

Step 2: Eligibility for Membership

The applicants intending to incorporate a mortgage guarantee company must acquire a well-diversified shareholding and a board of directors authorized to carry mortgage registration in India. The mortgage guarantee company is not entitled to hold more than half of its total board members who seem either to be a nominee of any shareholder with substantial interest or associated with the shareholder, in case a shareholder is a company other than a subsidiary of such shareholders.

Step 3: Filing Registration Application

The Reserve Bank of India, if satisfied with the purpose, considers the registration application for a mortgage guarantee company only if the mortgage guarantee company must primarily transact its business as a mortgage guarantee company. It is dealt to comply with it if at least 90% of its business turnover arises from the mortgage guarantee business, meaning its income is derived by reinvesting the interest earned from the mortgage business.

Step 4: Certificate of Registration

An interested company who desires to commence its business to offer mortgage guarantee as a company needs to get an approval of certificate from the Reserve Bank of India and must hold a net owned fund of INR 100 crores or above as specified within the notification of RBI from time to time. The application for seeking registration must be made according to the specified format.

Mortgage Guarantee Company must be independent of the direct and indirect control of any individual, association, or body of individuals duly incorporated or not and must be a partnership firm or company registered or incorporated under any law enforced outside the territory of India.

The Reserve Bank of India holds the right to cancel the registration of the Mortgage Guarantee Company if it finds out that the following conditions are not fully complied with:

• Any registered mortgage company has ceased to operate its business as a mortgage guarantee company within India or
• Failed to promptly honour the claims that arise from the contract of guarantee it has entered or is going to enter or
• Either fails to furnish the valid, necessary papers before the bank at the time of inspection.

Step 5: Acquiring the FIBP License

The FDI investment will be eligible for equity investment, which requires the mortgage guarantee company to get prior approval from the FIPB (Foreign Investment Promotion Board). In case the foreign entity that received FIPB/FED approval has a direct or indirect interest in the registration-seeking Mortgage Guarantee Company, then it will be regulated by the home country's financial regulator and must hold a good track record in business operation as a Mortgage Guarantee Company. However, this will not apply if the investor in the equity mortgage guarantee company is an international financial institution.

Step 6: Payment of Optional Fees

When applying for a mortgage loan, a borrower who does not belong to a bank or non-banking financial company may be given an option where a small fee is required to be paid for the loan and granted a higher loan amount for a long tenure.

The borrower may pay loan fees of 0.25% in addition to the interest rate. Suppose a normal borrower received a loan at the rate of 8.5 %; then such a borrower may get the loan amount at a rate of 8.75%. The borrower must pay an extra sum of INR 17 monthly on each INR 1 lakh borrowed. Here, the MGC will get 1.3% of the loan amount in fees for providing the guarantee.

In the absence of this, the borrower may either visit any lending financial institution that provides a high-interest rate on loan or get a lower loan amount. In the Indian market, if the loan turns bad, no payment is made for 90 days after the guarantee kicks in, and IMGC is more likely to make its share of the payout. Banks chase their borrower for money and to decide the property to foreclose upon. As the property is sold through the SARFESI Act, the mortgage guarantee company returns its guarantee shares.

Step 7: Mandatory Tax Advisory & Regulatory Compliance

The tax laws in India ensure the complex applicability of taxation rules and regulations for mortgage guarantee companies incorporated in India. Understanding taxation regimes in India and around the world helps your mortgage guarantee company to space and enhance your business setup, minimizing the tax exposure and key highlights on the risks presented by ever-evolving and increasing complex taxation rules.

Our industry experts, working closely with dynamic companies, offer tax advisory and regulatory compliance advisory services to develop a specific business structure. Our client-oriented taxation solutions are devoted to supporting our esteemed clients in understanding the complexity of taxation regimes and minimizing business taxation challenges.

We created plans to consider issues that arise within the specific type of tax or the implication of tax in any new project or any business change. Our comprehensive support in taxation and regulatory compliance services includes:

• Direct Tax services
• Indirect Tax services
• Financial services
• Transaction Tax
• Preparation of tax returns
• Assessments of taxation liabilities
• Regulatory licensing
• Regulatory compliance
• RBI compliance, etc

Step 8: Accounting Mandate

Every registered mortgage guarantee company must comply with the necessary accounting mandates. Maintaining an accounting checklist requires preparing the balance sheet and the profit and loss statement at the end of every financial year.

Leading Companies in Mortgage Guarantee Landscape

The concept and idea of mortgage guarantee were adopted in the financial system in 2012 with the Union Budget proposal of the Finance Minister of India, which led to the incorporation of leading mortgagor guarantors in India. Some of the leading Mortgage Guarantee Companies registered in India are:

1. India Mortgage Guarantee Corporation (IMGC)

IMGC, which stands for Indian Mortgage Guarantee Company and was incorporated in 2012, is more like a joint venture among the Asian Development Bank, the National Housing Board, and the International Finance Corporation that ensures services to the ICICI, AXIS banks, Housing Finance, and Tata Capital.

2. National Housing Bank (NHB)

The government of India owns the NHB to provide mortgage guarantee products, which operate its business operation to enhance housing finance within the country. Its operational vision promotes inclusive expansion and stability in the housing finance market. This government approach intends to make housing credit more affordable in India.

3. Genworth Financial India

Genworth Financial India is a global insurance holding company that offers mortgage insurance, life, and mortgage guarantee products through advisors, sales, financial intermediaries, etc., in the Indian mortgage landscape.

4. HDFC Ergo General Insurance Company

HDFC Ergo General Insurance Company is one of the leading companies in the insurance sector that facilitates mortgage insurance services, including other housing-related products, in the Indian market. It also offers a wide range of insurance products, including motor, health, home, travel, and personal accident insurance, in retail space and is more likely to offer products like property, marine, and liability insurance within corporate space.

5. SBI General Insurance Company

SBI general insurance company, with its strong parentage of SBI, seems to grow faster than private general insurance companies. This company was established in 2009 and has branches ranging from 17 to 141 within India. It has more than 34 crore active customers. It offers a wide range of products in different segments such as retail, corporate, SME, and rural to ensure its accessibility using digital and physical modes.

Why Choose Enterslice for MGC Consultancy?

Enterslice offers affordable and reliable Mortgage Guarantee consulting services, ensuring your business's financial health to meet your business objectives. Our professional will help you plan your financial budget forecast and offer valuable business insights to boost your growth in the ever-evolving landscape and advisory services with advanced business strategies to maximize your business's potential revenue growth.

Choose our cost-effective and efficient consulting services to lay out a path to success that is parallel to your business. Consider our cost-effective, professional, expert, step-by-step services offering to diversify the mortgage guarantee landscape for new startups.

Also, navigate our flexible and customized expert consultancy deemed to comply with your business-specific needs, requirements, and industry data that would help you develop business strategies and road maps for your business to maximize its revenue and minimize operational

Consider enjoying the following benefits with our industrial experts dedicated to helping every interested individual and company to set up their mortgage guarantee company within India. Following are the benefits that you might avail if choosing to get your MGC registered with us:

1. Market Research

Our industry experts work to closely conduct market research, which helps you identify your target audience and analyze the industry trends to rank your business and stay at the forefront of the market. We will assess potential competition to build a concrete foundation to develop your mortgage guarantee business in the ever-evolving landscape.

2. Building Networks

We will help your business establish and create partnerships with banks and other financial institutions. We are more likely to develop business strategies and plans to build your business network and expand your business operations.

3. Risk Management and Due Diligence

Our business experts help businesses to effectively manage the risk associated with the mortgage guarantee industry. We offer the best and most advanced business techniques that support implementing risk-mitigated business strategies to enhance your business operations more effectively and efficiently.

4. Financial Planning, Accounting, and business strategy Services

We have a team of experts skilled in business financial planning, developing strategies, and providing customized solutions to your mortgage guarantee business to achieve its success. Our experts work closely to analyze your present financial information to identify the specific areas and business opportunities for growth and help you create a comprehensive layout parallel to your business objectives.

5. Budget Forecasting

Our industry experts use innovative technologies to support our clients with accurate revenue forecasts. They also help businesses by offering optimization services to enhance their operational revenue potential in the mortgage guarantee industry. Using our skills, you can easily boost your business to the next level, navigate the complexity of the mortgage guarantee business, and gain confidence in making informed business decisions related to business activities.

6. Accounting and Bookkeeping

We will help your business implement a robust and advanced accounting and bookkeeping system capable of tracking and monitoring your business's financial transactions and cash flow, maintaining accurate reporting, etc. This will help you make informed decisions based on your financial business database.

7. Cash Flow Management

Our mortgage guarantee experts will help your business to stay alive and solvent. We will manage and maintain your cash flow using our professional intellect through forecasting and business planning models. We are more likely to work closely with our clients to manage their business cash flow most effectively and efficiently.

8. Customized Financial Plans

Our experienced professionals in the mortgage guarantee space analyze the industry data and develop strategic business roadmaps to help our esteemed clients maximize their business revenue and minimize operational risks. We are determined to develop financial plans as per the specific requirements of our client's businesses and drive their business growth toward success.

9. Profits and Loss Reporting

We are determined to provide reports based on your business's financial performance and suggest growth strategies. Our experts will work closely to analyze and monitor your business profits and loss statements to rectify the key trends and patterns accordingly. As we analyzed such business information, we possibly recommend your business about more effective business strategies to enhance your profits in terms of cost-cutting measures or hike in revenue opportunities.

10. Revenue Optimization

Our experts also support businesses by offering optimization services to enhance their operational revenue potential in the mortgage guarantee industry. We provide customized business-based recommendations to ensure your business operations can secure sustainable revenue growth over time. Businesses can easily navigate the complexity of the mortgage guarantee industry and boost their growth to the next level.

11. Platform Audit services

Our expertise in audit platform services for mortgage guarantee companies ensures that such platforms are secure, reliable, and compliant with the required industry norms and standards. We will analyze your mortgage guarantee business operational risk and implement the appropriate management practices parallel to the mortgage guarantee industry's best practices and regulatory compliance.

We access your mortgage guarantee platform infrastructure, technology, and database privacy measures to recognize any vulnerabilities that arise within the business operation and recommend improvements. We will conduct regular audits for platforms, which proactively help identify and locate any potential weaknesses within your business operations. Our industry professionals will help your business attain a solid and secure impressive mortgage guarantee platform within the country.

12. Funding and Capital Management

Our expert consultants specialize in funding and capital management for mortgage guarantee businesses. It does not matter to us whether you are seeking an investment, looking for business loans, or requiring further assistance with capital allocation.

Our team will evaluate your financial needs and goals accordingly and develop a comprehensive funding layout to manage your business capital effectively, boost your growth, and secure long-term success in the mortgage guarantee landscape.

13. Digital Transformation Advisory Services

We understand the value of implementing technology integration in the mortgage guarantee industry. Our experts can make you adapt the advanced technological tools or software in your business operations, assist in analyzing your business-specific requirements and objectives and recommend accordingly the best remedial solutions fit and proper for your business operations; more likely to integrate smartphone apps, the Internet of Things (IoT), Artificial Intelligence (AI), drones, Machine learning (ML) with many other technology developments to offer their customers and businesses a great experience in their financial services.

We offer digital transformation advisory services to our clients to improve their operations and make advanced technology available to enhance business. We help businesses adapt these advanced tools to make business operations efficient, reduce costs, and stay compliant in the ever-evolving landscape.

14. Data Analysis and Business Insights

We have experts in data analysis and insights, offering valuable business insights and intelligence to enhance your confidence in making an informed decision. Our team can utilise advanced modern analytics tools to interpret your business's informative data and extract useful business insights to help you identify the areas needed for quick improvements to optimize your business operations.

By collaborating with our experts, you can confidently make informed decisions to enhance your business profitability, reduce costs, and boost your business growth.

15. Legal, Tax, and Regulatory Advisory Services

We offer legal, taxation, and regulatory-based advisory services to help businesses navigate the complex legal system and ensure your business stays compliant with the applicable regulatory framework. We offer your business year-round tax planning strategies to minimize your business liabilities and maximize your deductions.

Subsequently, our professional experts will help you identify potential tax savings opportunities and ensure your business's compliance with taxation rules and regulations. They will also assist you with filing tax returns accurately and timely to free your business from legal penalties or interest charges.

Being your associate consulting partner, we offer your business legal and comprehensive business strategies to boost its growth in the mortgage guarantee space.

16. Litigation support

Lawsuits are complex, and by working with the right litigation support, our professional experts can transform your business and span several aspects of your lawsuit. Our experts track the information required to build case arguments and prepare legal strategies.

We will identify, preserve, collect, and review to produce relevant necessary papers to support your legal issue through innovative technology. We will also draft the documents needed for your lawsuit to eliminate the drastic legal consequences.

We also have litigation support experts specialized in the process, utilizing sophisticated AI solutions to expedite your legal matters. We can discover data management, legal research, and other elements of the litigation process. Your business will recognize our significant efficiencies by sourcing our litigation support.

We are determined to help you with the licensing process and its compliance obligations, which will help you take the necessary and required business steps to make your business operation smooth and functioning as per the applicable laws.

Collaborate with our industry experts to understand the legal and regulatory framework that governs the mortgage guarantee sector in India. We offer you proper guidance, professional assistance, and support.